Good air connectivity is vital for Irish trade

One of the most obvious effects of the pandemic has been a dramatic reduction in air travel. For much of last year, most of the aircraft crossing Irish airspace were cargo aircraft, with very few passenger flights between Europe and the United States.

While there has been some recovery in air transport, even today there are fewer than 10 flights a day to North America from Dublin, compared to almost 30 before the pandemic hit.

Restrictions facing incoming travellers as governments try to stave off imported infection, along with a growth in caution, have reduced the number of journeys, whether for pleasure or business. Zoom meetings and virtual conferences have largely replaced business travel and face-to-face meetings.

With fewer potential passengers and mounting losses, airlines cut back sharply on flights. There has been only a partial resumption of schedules as vaccination roll-outs have facilitated a reopening of international travel.

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While the impact on tourism has received more media coverage, reduced connectivity has also had a serious impact on trade. This has especially affected trade in items with a high value relative to their weight, which are normally carried by air.

Under normal circumstances, about 35 per cent of world trade by value goes by air, with about half carried in the holds of passenger planes rather than in specialised cargo aircraft. While cargo planes have continued to fly, the dramatic reduction in passenger flights has had a major impact on the trade that would normally have used this channel. The cost of shipping goods by air across the Atlantic has doubled and, to the Far East, has quadrupled.

With fewer overall flights, the time taken to transport goods by air is also now longer, impacting on the global supply chain.

Worldwide, almost two-thirds of pharmaceuticals are shipped by air, and about half of electronic products, sectors Ireland has specialised in

A 1992 study by UCD economists Joe Durkan and Aisling Reynolds-Feighan showed that even then, Irish exports had much higher value per tonne than the EU average. Because, as an island, we faced higher transport costs to get our goods to the EU market, we had begun to specialise in products where transport costs would be low relative to their value.

This trend has continued, as confirmed by a recent study by French economic think tank CEPII. In addition, over half of Irish exports are services, which are generally delivered electronically, not requiring any freight transport.

Within the EU, Ireland now has the highest share of the value of its goods exports delivered by air. For us this is 70 per cent, compared to 50 per cent for the UK, 25 per cent for Germany and 15 per cent for Spain.

Worldwide, almost two-thirds of pharmaceuticals are shipped by air, and about half of electronic products, and these are sectors Ireland has specialised in.

Because many of the high-value goods that Ireland exports by air are not very price sensitive, in the short run there is limited effect on trade from reduced air connectivity and higher freight costs. However, if air travel does not return to normal, in the longer term, companies may opt to produce some of these product lines elsewhere closer to market rather than locating their worldwide production in our island economy and relying on air transport.

The CEPII study also provides evidence of the important role that in-person business travel has on facilitating world trade; virtual meetings are only a partial substitute. The reduction in business travel options and reduced interconnectivity will have a negative impact over time on maintaining and developing trade links.

Air connections bring business. I remember an Italian businessman telling me that a crucial issue in deciding to locate in Dublin was the availability of at least one direct flight a day to Milan. If top management of foreign firms in Ireland cannot easily travel back to company headquarters, it may discourage them from locating or maintaining business in Ireland.

Before Sabena went bankrupt in 2001, it ran direct flights to many US cities, which facilitated US firms establishing their European HQ in Brussels. The loss of Sabena closed many of these air links, and some companies moved their HQs to Amsterdam or Paris, cities with better connections.

Aer Lingus ended its direct flight to San Francisco after the 2008 economic crash. Restoring this direct flight was a priority for IDA Ireland as the economy began to recover, given Ireland’s major business links with Silicon Valley through firms such as Google, Apple and Facebook headquartered there.

With grandchildren living in the US, I take a keen personal interest in Minneapolis-headquartered firms based in Ireland, and what that may mean for eventual restoration of the direct Dublin-Minneapolis flight, which we briefly enjoyed.